The Department for Business Innovation and Skills (BIS) is extending the deadline for consultation on plans to exempt micro-entities from certain financial reporting obligations, because of the volume of comments coming in.

If adopted, the proposals will make significant change to accounting for smaller businesses, allowing them to draw up a greatly abridged balance sheet and profit and loss accounts, which would not need to be filed with Companies House.

Other reporting changes would mean that where a company has acquired its own shares, has outstanding commitments by way of guarantee of any kind or has advanced loans to directors, these would need to be disclosed. No other note disclosures would be required.

Micro-entities would also be allowed to not recognise accruals or prepayments as long as these relate to 'charges other than the cost of raw materials and consumables, value adjustments, staff costs and tax'.

Apart from this limited exemption, normal accruals accounting would still apply. Responses to the new EU-led rules are now due in by Easter.

In its initial response, ICAEW raised concerns about tax and distribution issues it said needed to be examined in more detail, along with consideration of how annual account drawn up in accordance with these exemptions would be regarding as giving the necessary 'true and fair' view.

The institute also said that the non-recognition of accruals and prepayments is likely to make micro-entity financial statements less useful, but without significantly reducing their costs, and suggested this exemption could be ignored, while still taking advantage of the rest of the proposed simplified regime. It also warned that in some cases the mix of accruals and cash accounting risked causing confusion.

ICAEW is currently preparing a draft submission on the proposals, which is due to be circulated by the end of this week.